Articles Posted in Housing Bubble

Comparing the Incomparable- Credit Ratings Agencies Revisited

By R. Tamara de Silva January 17, 2011

Yesterday, Standard & Poor’s relieved the Eurozone’s bail-out fund, the European Financial Stability Facility (“EFSF”) of its AAA credit rating, possibly hampering the fund’s ability to contain the European debt crisis. This comes on the heel’s of the S&P stripping both France and Austria of their triple-A rating in favor of a rating of AA+.[1] The effect of the S&P downgrade may be negative. Ratings agencies exist to level asymmetries in information and evaluate risk but one of their inherent oddities is that they seek to compare things whose differences in scale make them incomparable. Ratings agencies also have conflicts of interests, they often evaluate financial products (like collateralized debt obligations) that they do not understand, they seem to lack fixed ways to measure absolute risk, and they are at times, catastrophically wrong.

By R. Tamara de Silva October 25, 2011

On October 24, 2011 the Federal government announced that it would revise the Home Affordable Refinance Program (“HARP”). HARP was originally launched in March 2009 as a $75 billion plan to put a stop to the foreclosure crisis. HARP was supposed to prevent millions of the 9 million American homeowners facing foreclosure from defaulting on their mortgages and losing their homes. Yet as of this past July, HARP has only helped 865,000 of the 9 million homeowners who must refinance their home loans or soon default.

The housing crisis is by all accounts far from over. The bottom has yet to be reached in the housing market and one cannot but wonder how mortgage defaults would be affected were the Federal Reserve not to keep interest rates continually suppressed. Recently, Moody’s announced that foreclosures will rise to unprecedented levels in 2012, enveloping 30% of all mortgages and totaling over 1.5 million defaults.